KForce Inc. ( KFRC)

Q3 2010 Earnings Conference Call

November 1, 2010 5:00 PM ET

Executives

Michael Blackman – Chief Corporate Development Officer

David Dunkel – Chairman and CEO

Bill Sanders – President

Joe Liberatore – EVP and CFO

Analysts

Evan McVeigh – Macquarie

Mark Markham – Robert W Baird

Paul Ginocchio – Deutsche Bank

Kelly Flynn – Credit Suisse

Tobey Sommer – SunTrust Robinson Humphrey

Presentation

Operator

Good day, ladies and gentlemen, and welcome to your Q3 2010 KForce Incorporated Earnings Conference Call. (Operator Instructions). Now I would like to introduce your host for today, Michael Blackman, Chief Corporate Development Officer.

Michael Blackman

Great, thank you. Good afternoon and welcome to the Q3 KForce conference call. Before we get started I would like to remind you that this call may contain certain statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially because of factors listed in KForce’s public filings, and other reports and filings filed with the Securities and Exchange Commission. We cannot undertake any duty to update any forward-looking statements. I would now like to turn this call over to David Dunkel, Chairman and Chief Executive Officer. Dave?

David Dunkel

Thank you, Michael. You can find additional information about KForce in our 10-Q, 10-K, and 8-K filings with the SEC. We provide substantial disclosure in our release, and our hope is that this will improve the dissemination of information about our performance and the quality of this call.

Once again we’re very pleased with our firm’s performance for the Q3 of 2010, with revenues exceeding the EPS at the top end of guidance. It is now clear that this recovery is different than past recoveries in staffing. Historically, tepid GDP growth of 2% or less meant flat revenue performance and limited penetration. Since the beginning of the year, private sector jobs have increased by 602,000, with temp help jobs accounting for 217,600 of those net job ads – roughly 36% of the net job ads despite temporary staffing accounting for only 1.6% of total payroll dollars. We believe this is evidence of a secular transition to a flexible workforce, as our clients seek greater flexibility in an uncertain economic, regulatory, and tax environment.

KForce’s results have been strong throughout the downturn and now into the recovery. Recent staffing industry data and our KPIs suggest continued strength in our staffing business. During the Q3 we adjusted field and NRC delivery to align better with the very high demand from our strategic accounts and field clients, in finance and accounting and in particular, technology. This significant increase in demand that began in March and April has continued at levels we have not experienced in prior recoveries. On a sequential basis, flex revenue increased 5.7% in tech and 16.5% in F&A. Total firm revenue increased $31.2 million, or 13.7% on a year over year basis. Surge also had another outstanding quarter with our surge teams in all three regions performing exceptionally in delivering 7% sequential and 61% year over year growth. Overall, another excellent quarter for KForce.

We have continued to evaluate sales and delivery capacity against very high demand, in what we believe will be seen as the beginning of a secular shift towards the use of flexible resources. The backbone of our sales efforts is in our field sales force, and we are balancing productive capacity against forecasted demand, and adding to our team where appropriate. The balanced and widespread strong performance in nearly all of our geographical markets is encouraging, and we believe will provide operating leverage throughout the recovery. Our strategic accounts team is starting to gel and we are seeing opportunities for new clients, while our primary focus is further penetration and share in our current clients. Our NRC teams continue to perform very well, as our associates mature and ramp to productivity. Strong cash flows allowed us to make progress in our debt retirement as we reduced borrowings post-acquisition of our building. We anticipate using cash flow for continued debt retirement, share repurchase, and acquisitions that meet a very high hurdle. While we are seeing many opportunities, we are maintaining our discipline and standards, and we have not consummated a transaction since December, 2008. We are finalizing our plans for 2011, the last year of our triple crown, and have made substantial progress on our next three-year plan. We believe we will exceed prior peak earnings earlier in the cycle, and we are now very close to exceeding prior revenue peaks. Again, a great quarter with great results, delivered by our great teams.

I will turn the call over to Bill Sanders, KForce’s President, who will provide his comments. Joe Liberatore, KForce’s CFO, will then provide additional insights on operating trends and expectations and we will then entertain questions. Bill?

Bill Sanders

Thank you, Dave, and thanks to all of you for your interest in KForce. We are very pleased with our Q3 performance, and the continued strong environment for professional staffing as clients dare to be looking increasingly to our services to meet their hiring needs. In particular, our technology and finance & accounting flex businesses continued to show strong growth in the quarter; and the continued growth in our permanent placement business contributed to overall revenue growth and profitability. Our firm is well positioned to take advantage of our clients’ increasing desire for a more flexible workforce, driven by an uncertain economic environment in what we believe will be a secular shift towards flexible staffing.

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